Intermediate-term target rests at 1,900

Referenced Symbols

EDITOR'S NOTE: This is a free edition of The Technical Indicator, a daily newsletter by Michael Ashbaugh, who recently joined CBS MarketWatch from Briefing.com. For a more detailed assessment of the markets on a day-to-day basis -- in addition to 80 trading ideas per month -- please learn more about subscribing to The Technical Indicator.

CHICAGO (CBS.MW) -- When we reviewed the Nasdaq Friday we remained bullish on the near-term outlook.

In fact, the near-term bias has held bullish at The Technical Indicator for four consecutive sessions since Wednesday Aug. 27, which follows the Nasdaq's lift from support at 1,737.

Without belaboring the point, the relevant passage from that Aug. 27 review follows:

"Looking forward, the consolidative bias triggered by Friday's reversal has been neutralized by the buy interest at 1,737, and the longer-term bias remains comfortably bullish. Again, the aggressive trader will want to favor long positions on pullbacks to support.

At this point, the near-term bullish bias would begin to deteriorate on a violation of support at 1,737."

As it turns out, the Nasdaq never subsequently violated that support point at 1,737. In fact, through Friday's close, the index had returned as much as 73 points, or 4.2 percent, in a matter of just four sessions.

The chart above is a five-minute chart of the Nasdaq
$COMPQ
in which each bar on the chart represents the opening and closing levels for each 5-minute time frame. This time frame provides a detailed view of the prior two sessions.

The primary point on this time frame ties to the straight technical levels. Recall two days ago -- on Thursday -- we had staked out support at 1,776. Again, the 1,776 level marks the July high, and also formerly served as resistance in mid-August.

The chart above also illustrates three other near-term technical levels. As a point of reference, each of these areas was designated in the Friday review.

This second chart is an hourly chart of the Nasdaq in which each bar on the chart represents the opening and closing levels for each 60-minute time frame. As always, this time frame serves as a detailed view of the prior 10 sessions.

Note the chart above illustrates the two most recent shifts to the near-term bias.

Point B illustrates when and where the index observed support in the vicinity of 1,740 and 1,757. These areas were initially designated as target support points last Monday, Aug. 25 and will remain areas of interest going forward.

Yet the recurring nature of 1,740 as a "more important" technical level is also interesting to note. Recall the 1,737 to 1,740 range was initially designated as a "near- to intermediate-term target" as far back as the July 7 review. Also note the Aug. 1 review carried the headline "Still waiting on Nasdaq 1,740."

So what about the current outlook in light of Friday's price activity?

Looking ahead, the technical picture is similar to that addressed here Friday. Namely, the near-term bias continues to favor additional upside, and the longer-term bias remains comfortably bullish as well.

Yet the "real" question over the near-term ties to how the Nasdaq responds to its breakout point in the vicinity of 1,812. Recall 1,812 marked the Aug. 22 high, and the index staged a pronounced 47-point intraday reversal to close at 1,765.

Now a sustained break of a broader technical level along the lines of 1,812 conventionally would be expected to hold on the third or fourth independent test. The current approach represents the second test.

So the aggressive trader will want to continue favoring long positions on pullbacks to support. Nonetheless, the "watch out" will be for a pronounced reversal along the lines of what transpired on Aug. 22.

Be aware that based on the current picture, the bullish near-term bias would begin to deteriorate on a violation of straight-line support at 1,776. Yet it would take a violation of support at 1,757 before the near-term outlook began to favor potentially more significant consolidation.

For those operating on a near-term basis, the straight technical levels should be familiar. To the downside, look for initial support at 1,800 followed by an additional floor in the range of 1,791 to 1,794. To the upside, the index faces notable resistance in the range of 1,812 to 1,814 followed by today's intraday high at 1,824.

As one final point, with the Nasdaq moving to new 16-month highs, it's worth reiterating the intermediate-term target for the index in the vicinity of 1,900. Again, this target was initially set in the Aug. 21 review.

Also note an intermediate-term target on the Dow rests in the area of 9,660 -- a target initially established in the Aug. 19 review.

Tuesday's Watch List

In the charts below, we identify several names that look interesting from a technical perspective. These are intended as radar-screen stocks - shares that appear well positioned for a potential move higher over the near term. At the same time, we have identified the more immediate levels we believe are worth looking towards over the upcoming days.

Company

Symbol

Fri Close

Support

Resistance

Brazil iShares

EWZ

12.26

12.00

13.00

The chart above is a weekly chart of Brazil iShares
EWZ,
+3.85%
that goes back three years.

Note that last week, EWZ edged above longer-term resistance in the vicinity of 12.00 -- that area approximates the July 2001 low. Initial resistance at 13.00 matches the March 2001 low.

Originally profiled in The Technical IndicatorAug. 5, shares of International Rectifier
IRF,
have since returned as much as 30.6 percent.

Note IRF has edged just above the 41.40 level, which is a longer-term area originally designated on the weekly chart back on Aug. 5. Initial support in the vicinity of 40.00 is a modestly congested area that nonetheless stands out in the midst of its pronounced extension.

Company

Symbol

Fri Close

Support

Resistance

International Rectifier

IRF

41.59

40.00

41.85

Company

Symbol

Fri Close

Support

Resistance

Netflix

NFLX

33.33

31.25

33.78

Originally profiled in The Technical IndicatorAug. 22, shares of Netflix
NFLX,
+1.27%
have since returned as much as 17.1 percent.

From current levels, look for modest initial resistance at 33.78 which represents its 52-week high established Friday. The near-term bias should favor additional upside so long as the shares maintain a posture above secondary support at 28.86.

Company

Symbol

Fri Close

Support

Resistance

Avid Technology

AVID

49.70

47.10

50.42

Shares of Avid Technology
AVID,
+5.62%
were among Friday's top Nasdaq point-gainers.

AVID was initially profiled here on Aug. 20, and remains well positioned for a break higher. Note pullbacks to the 20-day exponential moving average have represented attractive entry points over the prior three months.

Note the shares remain positioned within a nine-week bullish Ascending Triangle. This means over the prior nine weeks, buy interest has surfaced at progressively higher prices. At the same time, sell pressure has generally remained static.

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About the Author

Michael Ashbaugh writes technical analysis for MarketWatch and is editor of MarketWatch's "The Technical Indicator" newsletter. He joined MarketWatch in 2003, has been quoted by The Wall Street Journal, CNBC, Reuters and Dow Jones, and has appeared on the television program MarketWatch Weekend. Ashbaugh graduated Magna Cum Laude with a degree in finance from Indiana University.

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